• Property

    MVA: No second tax shock for A-REIT investors

    Jamie Hannah, Vice President – Investments & Capital Markets
    23 April 2019
     
    When Unibail-Rodamco took over Westfield Australian investors were surprised that they would be hit with a French 0.3% transaction tax on any new purchases of Unibail shares on ASX.  Things have gotten worse.  

    What’s worse than a 0.3% tax?

    A 30% withholding tax.

    When investors received their dividends this month they found that the French Government had deducted 30% withholding tax. Sacré bleu, some might say.

    A big part of the attraction to property trusts is a steady stream of income. Losing a big chunk of your income to a foreign government hurts.

    It hurts more when rather than holding Unibail directly, you invested in an ETF to get a diversified exposure to A-REITs. You thought you were only buying Australian REITs so you weren’t expecting foreign tax. Quelle surprise, a French REIT hiding among the Aussies.

    ETF investors wouldn’t have felt the reduction just yet, as the ETF wouldn’t have passed on the reduced dividend yet. At least their diversification will partially shield them from the problem.

    A frustrating aspect of this is that there is a treaty between Australian and France where both countries have agreed that the maximum rate of withholding tax a source country can impose on a cross-border dividend is 15%. France, however, like a number of other European countries takes 30% up front and makes you jump through paper hoops to get the excess 15% back.

    Investors do not want to spend time on such stupidité.

    The Australian Government will reduce any Australian tax payable on a dividend by the amount of any foreign tax that has been paid. But this has its problems too.

    First, you have to wait until you lodge your tax return for the year.

    Second, a lot of retirees pay little or no tax and the Australian Government does not refund any excess. The Australian tax can be reduced to zero but it can’t go negative. So many retirees will get no offset.

    Third, the Australian Government only gives the offset to the extent the tax is not reclaimable from the foreign government. They’ll give you 15%, not the whole 30%.

    If the French tax is a problem for you, say au revoir to Unibail and any ETF that contains it.

    VanEck Vectors Australian Property ETF (ASX code: MVA) does not have Unibail as it does not qualify for inclusion in the index it tracks, the MVIS Australia A-REITs Index (MVA Index) because the foreign listing is not an A-REIT.

    Unibail is not Australian so doesn’t belong in this portfolio. To our surprise, other A-REIT ETFs didn’t do this. If you hold one of the other A-REIT ETFs, you should check what they did.


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